Quotables

Transcript

[03:35] Houston: Hi everybody – this is Houston at the Trading Edges podcast and my guest today is Barry Taylor. Barry is a trader, Blogger and developer of a very popular set of indicators and if am not mistaken a very avid surfer so he’s my guest today on today’s show and before we get going today hi Barry, how are you doing?

[04:01] Houston: Awesome before we get started. Where are you calling in from today?

[04:05] Barry: I’m calling from Sydney Australia, the great Manley Beach which is a little surfing suburb just north of the Central Business District here in Australia

[04:13] Houston: Beautiful, And what’s a little bit about Barry as we get into the conversation further is that Barry as an avid surfer and what’s kind of cool but he kind of travels around the globe of kind of finding cool surf spots if I’m not mistaken.

[04:29] Houston: Awesome so why don’t we just take a step back for a second and maybe I’ll let you give us your background story maybe you can tell us Barry – how did you get started with trading? We obviously know you have been trading for a while you have a very popular blog called e-miniwatch.com. But what started your trading journey and maybe share with us your approach to trading?

[04:50] Barry: Sure I’m going to say something a lot of people say when what’s your trading journey I started with stocks and commodities and so on but I’m actually going to take a slightly different tack and tell you that this was the last thing I imagined doing as a young adult; in my teens my father was a mutual fund salesman and initially and then he set up mutual funds around the world in the fifty’s and sixty’s he sold mutual funds to American servicemen who are based in American bases all over the world after the Second World War and then he was so successful doing that that he transitioned into starting and managing mutual funds and he did that, in Canada, Argentina, Hong Kong and Switzerland, all over the world and we had a very bad relationship when I was a teenager we just did not get on he was a very very harsh man and I know young people these days seem to I mean they have such great relationships with their parents in the fathers young men these days may be difficult for you know if you’re a twenty year old to think that you have a bad relationship with your father but back in the seventy’s when I was a kid it was kind of the norm we kind of hated as (Houston: that’s par for the course) it was par for the course exactly and he was a very hard man although a fantastic father in retrospect I look back and you know bless my stars that you know he was my father. And because he had that background in the finance industry (Houston: Yeah) I struggled enormously to get away from it and I became an engineer and I said that it was the last thing I would do that finance was a parasite on the back of the productive economy and so I moved off into engineering and I was qualified in manufacturing engineering with the specialization in Robotics and after university I got a job consulting and I was doing that for six or seven years until an opportunity kind of came up; I was working in factories and going around and advising on manufacturing and marketing strategies and then I went freelance and a friend of mine who is working for Citibank at the time said there was an opportunity to do a consulting job with their trading group and I said yes sure I’ll come in and do that and the minute I walked onto the trading floor in Citibank in Sydney – this is, you know twenty plus years ago was just hooked. I just realized I had it in my blood in my DNA. You know and I just it just made sense to me you know a lot of kind of financial concepts that a lot of people have trouble with just you know they just seem to kind of just click with me and so I realized that you know I am my father’s son and I’ve taken a long and secured as kind of a path to getting here but sometimes you gotta take those you know off ramps and kind of come back and that’s where it ended up back doing this which he’d be proud of- I think; although he died when I was a teenager but I think he be proud of but you know so it’s kind of in my blood of suppose.

[8:03] Houston: So when you did decide to start trading yeah how did you pick it up? Did you try to go it alone or do you seek out; did you work for a financial institution what was your path towards becoming a trader?

[8:06] Barry: I was going it alone but I was fortunate that this assignment that I worked on and I worked with the Citibank guys for two or three years and a lot of it was to do with the trading floor and one of the assignments was… this came down from headquarters in New York they said we’ve got to size the market for each of these financial instruments around the world and compare the players in the growth rates you know a typical kind of marketing strategic plan. But it meant dividing it meant going into each of the desks on the trading floor and figuring out you know how big is the you know the corporate bond market in Australia; how big is the sovereign debt market in the Australia, how better gives each of the forex market in Australia and then all of a little esoteric kinds of parts but all of the breakdowns and you had these conversations with the traders saying well how does it work; how can we size this? And they were looking at bid asks spreads and what they made and you know whether they traded it actively or whether it was just an order flow that they were taking acting, as a broker is instead of proprietary trading and so on (Houston: Yeah) and so I go to an overview of each of those trading markets in a very short period of time from people who lived and breathed that day in day out; so I was very fortunate with that so that was a big help and then you know like everybody else I mean this is secrets, secrets squirrel stuff I mean, we are so much of it is just kept you know secret and you know if you have an edge it’s like you’re not gonna tell anybody so you’re reading books you’re learning as much as you can. I would have read at the time everything that was out there that I could get my hands on and and back in the day you know in Sydney I was buying trading books that cost you one hundred twenty five dollars in Sydney and kind of you know things that would been easier to buy in London or New York but you know kind of out a reach. I just soaked it all up than you know I went through my kind of learning in that way; so was the combination of the two it was having a little bit of kind of insight from the professional trading desks and then also supplementing that with whatever I could read. And then Larry Williams was actually an important part of my kind of journey I read everything that he wrote and he would come down on a regular basis and trade in Sydney he used to run a thing called The Million Dollar Challenge and he would come and trade a million dollars with ten or fifteen people at a time each year we kind of come down and and that was a big expense for me I forgot it was it was big six and a half thousand I paid to trade with him for three days. And I learned a lot about what to do and what not to do from, so that was part of my journey as well.

[11:01] Houston: And then so how did you cut your teeth? Did you cut your teeth on a particular set of instruments? Did you start like you said it’s with stocks or options or…?

[11:10] Barry: So all of it’s been reducing my time frames and moving more and more towards the pure driver of markets so I initially started with stock. And then you kind of get once you get kind of the bug you start going to options or IPO’s and warrants and stuff like that and then I moved on to commodities and futures and eventually to index futures. But the theme with all of that was first of all I was reducing my time frame down and down and down because I feel that the shorter the time frame you’re looking at the more obvious the trends are. There’s more noise the longer term – there’s an intermediate, if you look long, long term in equities or commodities or so on you can see a long term trend (Houston: right) and then on very short time frames you can see trends but somewhere in the middle, the trend gets lost and there’s a lot of noise; so if you’re looking at things that I don’t know, two to ten days that’s a really noisy kind of time space whereas if you’re looking you know ten minutes to twenty five minutes there the trend becomes far more obvious and discernable.

[12:24] Barry: So I was reducing my time frame all the time and then what I learned from trading stocks was that eighty percent of the move in the stock was driven by the index, was what the market was doing and I would be kind of short term swing trading stocks and find I’d be up and over the course of two weeks and then I’d lose it all in the next ten days because you know the market went up against me it wasn’t that the stock was a bad choice it was just the overall market moved against and then there’s the problem of the kind of news driven events and so on with stocks. And so I said why I my trading the stock or the derivative the stock being the option or the warrant, when I should just be trading the index purely itself and you get rid of the news problem and you’re looking more fundamentally at the trend problem. So that’s why I ended up with indexes and that’s why I kind of try and persuade people because stocks are so common and they’re so obvious to trade because you know Chipotle, you know Apple, you know all of these names and you think therefore you kind of that familiarity is easy to kind of trade into but then so much of it is being driven by the index. (Houston: right) I’d rather go for the pure play or as close to the pure kind of trend as I can get.

[13:49] Houston: At the same time as we talk and appreciate you don’t have the insider narrative either the true insiders do (Barry: absolutely) a missing on a couple really foundational movements of the stocks.

[14:01] Barry: You know a lot of people forget that that you know again we talk about different exchanges so the C.M.E – The Chicago Mercantile Exchange in the Globex platform is actually one of the purest exchanges out there you know. What gets done on that exchange is done in order, all the trades get executed in order – no one has any preferential treatment – whereas you start getting into equities and you look at what’s happening in New York with all the exchanges there and we have something like thirteen or seventeen different exchanges you know and this is the the Michael Lewis kind of story which is the high frequency traders, the insiders are playing the retail trader with you know, front running basically running between each of the different exchanges and so you’ve also not only if you’ve got kind of news events and you’ve got kind of professionals trading against you each of the individual names have professionals that specialize in those and then you’ve got kind of the mechanics of the exchanges as well. All of those things are against you and I’d rather play something where at least I have is as best I can a level playing field.

[15:10] Houston: Sure and so, let’s talk about your approach – let’s boil it down – right now you trade pre-dominantly the e-mini and the ES …

[15:21] Barry: Probably about ten years now, in total. I gradually moved over to it but yeah, that’s all I’ve been doing and you know from time to time it kind of gets in… I love looking at everything I love looking at you know what crudes doing what all for forex contracts doing and trying to understand them on mind the big picture where the money’s flowing around the globe and and into what assets – that I found fascinating – but I don’t get confused. The thing that I tried is the e-mini.

[15:50] Houston: And what I get from you is that you and Barry you do trade full time and what I get from you is that you really use trading as a vehicle to sort of finance your lifestyle like you said you, you’re an avid surfer. Could you talk to us a little about the way that you trade? So, do you trade…you know, do you trade throughout the day? I think a lot of people often wonder, OK as full time trader, what does that look like….does he sit in front of his computer all day long? Does he have time to take a break and go surfing? What does that look like?

[16:23] Barry: Well, every trader is different; there are some traders that love watching their screens all day – from the beginning to the end, in the after-hours. So, on my, trading look looks like quite different if I can be in and out in ten minutes by eight forty five am that is a great day. I’m just looking for a little move. I’ve put my initial profit target about four points on the e-mini, which is a nice little – it’s not too much it’s not too little – and if I can get on board a little trending move kind of early in the day and be out and done that is fantastic. I also don’t try and tried every day, I’ll only trade two or three days a week; I won’t be trading five days a week and with my schedule kind of we travel around the world so I’m spending three or four months in France, three four months in Hawaii, and then three or four months in Sydney Australia and each of those with the time zones you know you’ve got different kind of days – the hardest I have to say is trading in Sydney because the market the U.S. markets open here at eleven thirty pm. And so I usually go for a rest early evening for a couple of hours and then kind of get up for that open and trade the first half an hour – it has to be and then kind of go back to my bed. In France, it’s nice it’s kind of afternoon trading the market will be open at like three thirty or four thirty in the afternoon and it’s kind of coming in to dinner time and then Hawaii; Hawaii actually I find very productive we kind of get up in the morning at four thirty in the morning and with the and there’s a time change when we stay there and sometimes it’s up at three thirty in the morning.

[18:02] Barry: No; in fact it’s actually the nicest. I like it, we – my wife and I – both get up and work at that time. I kind of can get a video out usually after the or you know kind of mid-morning trading morning; I can be done my kind of work if you like by eleven in the morning and then go surfing for the rest of the day. (Houston: Yeah) So it actually I find Hawaii the best- it’s most productive time so like trading first thing early is actually quite good for me; the hardest I do find is actually trading in Sydney and so I’ll say in Sydney I’ll be trading less two or three days a week. (Houston: interesting) and if I do not feel like it I do not trade because you have to be…you’re very keen on this and Houston is like being mentally on your game. (Houston: Yeah) you know, if you’re not on it – do not try because you will just dig a hole and then you’ll dig your hole even deeper. So if I do not feel like it, I don’t feel bad and if I miss a day it’s fantastic day you know there’s always other days so I don’t worry about that but in Hawaii I’ll be more trading four or five days of the week just because it feels better there than it does in this kind of time zone.

[19:15] Houston: That’s interesting I think I’m more of a night owl so I think I would have an OK time in Hawaii but I’d be OK in Sydney.

[19:19] Barry: Then there’s the other imperative you know this is this is how you earn your incomes -it’s a big kick up the pants; it’s like it gets you to your desk and thinking and I’ve got to take this seriously.

[19:31] Houston: So how do you decide…I’m curious how you decided, figure out perhaps just to trade every two days or five days; how did you just how did you figure that out?

[19:41] Barry: You work it backwards from what you need. So I wouldn’t say we live frugally but we don’t live ostentatiously and we back it down from you know what is it that we need to generate terms of income for the whole year and then work that into a weekly target and then a daily target in the trading target and once you’ve hit that target that’s your job; your job is to go insane – my job when I trade is to go in to make my four points and be out. That’s one of the hardest things I think you find with trading is to know when have you’ve done your job; and if you’re just if you called trading times like I’m going to trade from the open to the close and make as much money as I can. That’s a very open ended kind of obligation (Houston: right) whereas if I say look you know my job is to make four points with a minimal amount of fuss and be done and if I can do that and if I can stretch it out to five points or six points all the better and if it’s only three if it’s only two and a half after a couple of bad trades and one good trade that’s good enough. And then the weekly target is ten and if I can do ten on a consistent basis – there’ll be a week, maybe a week or two a year – that kind of really don’t go well and then you just back it out from what I need to live and then what does that mean I have to do each day and that’s my job.

[21:04] Houston: Yeah, beautiful; that’s so well thought out – a lot of people think they just hear the magic number and they’re like I just need to make two points a day or four whatever that number is, and then they’ll do whatever it takes what they think is required to get that done but then some they don’t take into account that this going to be some rough patches, there’s gonna be some good patches and sometimes if they don’t pay close attention it doesn’t even out ….

[21:26] Barry: Absolutely, and the worst of the worst days are the go nowhere days – the days where we have a little bit of range mean luckily you know it’s better than it has been in previous years but you know a six or an eight point, the e-mini point range day is a nightmare.

[21:44] Barry: So I pick a profit target of four points that will have a chance we can get, we can have that in a nice little move in the morning.

[21:52] Houston: Yeah and so you do you put on like trade just the morning session, like the Eastern Time Zone morning session is that your preference?

[22:00] Barry: Pretty much; except for OMC days – for OMC days I’ll not trade the morning and wait till the announcement and maybe get involved; sometimes it’s so wild I just like just not like looking at it and laughing and sometimes I’ll jump in and move my targets and stops out of whatever. But, yeah the morning session so I would say there’s a maximum of two truth to trend moves a day and you know, a day is either an up day or down day or it’s a reversal day or go nowhere day you know you get those days where it’s just batting backs and forwards and really kind of went nowhere but you know there’s two trends a day and eleven A.M. is the window for that reversal kind of trade setting up. So your morning is about figuring out what is that morning trend – that early morning trend and taking advantage of that. Then if you want to trade it lighter and you have one of those reversal days where there’s another trend setting up into all the eleven AM window which is the cutoff for those reversals then if you can get on board that reversal than that’s another kind of nice move to be made but do less; just be happy with what you can you know take out and if you can eke out a little bit every day you’re a winner you know. It’s the people that are trying to make it home runs every day that are just they’re going to blow up so…

[22:25] Houston: Yeah, so true and I’ve talked about this with another pod guest but I think where that is probably stemming from is some type of scarcity you know, if you approach the market, appreciate what you talk about here as you know you’re comfortable only trading some days of the week you don’t you don’t need to trade every single day but you know for traders you’re going in there thinking that you need to trade every single day then you’re bringing something to the markets you’re bringing a level you know a mindset of scarcity, of lacking because you think you need to make something happen. And usually that doesn’t turn out well for the most part…

[23:56] Barry: It doesn’t you know, I’m not in charge – this isn’t like telemarketing and beating down you know the sales leads or something like that, the market sets up the opportunities so you’re not in charge of them.

[24:10] Houston: So, I’m very curious to talk about more about your indicators as I said in the intro you have you know very popular set of indicators call the better indicators. Let’s talk about those for a second – so how did you come about building your own indicators – you have an engineering background but at the same time, did you come up with a secret sauce? What was the kind of light bulb moment that said all right I can take these things and make them better?

[24:35] Barry: So I have to give credit to some very bright people. Particularly, a trader developer called John Ellis who wrote The Rocket Science Traders and Cybernetic Analysis – he’s a genius; absolute genius and his understanding of bringing kind of signal analysis to the trading markets really opened my eyes I’d recommend everybody to… it’s heavy stuff, his stuff is heavy and I do have a background in Mathematics and Engineering and I’m fortunate from that perspective but he taught me a lot of signal processing.; and then the volume the Wykoff side of things. Tom Williams and the VSA guys – they’re kind of understanding and they’re modernizing of the Weiskopf concept of the importance of a volume that really make it kind of a contribution to to my trading and to some extent the indicators and then the third one was stumbling across measuring average trade size which I still have not seen anybody out there doing. Man, I don’t look around very much and see what everybody is kind of up to these days in terms of developing stuff. I know order flow is getting more and more popular – market profile was really popular in three or four years ago but no one’s looking at the average trade size and it just stuns me that the usual story is that the professionals will break up their orders into small parcels so that they are indistinguishable from the retail trade or the amateur trader. Yeah, that’s true to some extent but you can’t do it and be totally incognito (Houston: right) and there is a footprint you know the professionals can be seen when they’re active, the average trade size bumps up and so by looking at average trade size you can see where the amateurs are active and you can see where the professionals are active so the three indicators that I use like I talk about non correlated indicators you need the minimum number of indicators on your chart. I see everybody with these charts with price indicators and price indicators only you know they’ve got moving averages a size, they’ve got Mac Ds, they’ve got Fibonacci numbers; they’ve got all kinds of moving averages on the charts and so on and they’re all based on price and to be honest they’re not giving you any extra information – they’re just kind of cluttering up your chart. So I use one price indicator and that’s better than a sound wave and then for volume I use one indicator better momentum and which looks at volume in the momentum which is kind of the thrusts and pullbacks in terms of volume because volume is the fuel that drives the market – it’s the gasoline in the tank. And then lastly I look at the average trade size to see where in the sequence in the trading kind of picture the amateurs and the professionals are being active and kind of follow along with them. So it’s three non-correlated indicators that are based on three raw pieces of information that you get from the exchange – which is price, the trade size and the whether the trade happened on the bid or the ask so that the momentum kind of flow in volume and it’s a combination of those three together.

[27:53] Houston: And now when you use that system so tell us a little bit more – so did you, was it a matter of trial and error until you found kind of the right combination of indicators or did you already have a set that said alright I need to remove some now and just kind of stick with the ones that are really working?

[28:14] Barry: Yeah, so it was a long, long period – ten years of … I would subscribe to Stocks and Commodities Technical Analysis, Stock Quantities Magazine – that is still around and they kind of you know used to publish a list code in the back and I’d copy it out, and I’d test. I’d be working during the week on my consulting gigs and then in the weekends I’d be coding and testing like a madman and just to see things that worked and you know the sine wave stuff John Ellis stuff; first of all started to make sense and he came up with a thing called the sine wave and he didn’t push it as far; so I just hope I’ve pushed it that’s why I call it the better sine wave. I pushed it a couple of steps further and kind of pushed in the direction he’s not gone with it and then when you start to combine looking at volume and volume indicators and then better program which is the average trade style stuff was you know kind of just going back to fundamentals and basics and thinking what am I missing? What’s in the data than I’m not extracting in order to get some insight as to what’s going on so I would test things like a madman and then I’d throw things out and they would stage it. You get to a stage I see this occasionally with people in the charts and they’ll send me screen shots of all the indicators that they’ve got in loaded up into their platform and so on and you can see them in my platform there would be four or five hundred custom little kind of version with indicators that I’ve done and I would every two or three months I’d start adding these things to my charts and adding them and then all of a sudden my charts looked crazy ridiculous. And I’d say “no come on let’s get that to basics” and I’d take everything off except the one or two things that I’d seen over that three or four month period that really made sense and it was a process of kind of building stuff and then hacking at back and then building and hacking back and eventually it kind of came out with these three indicators that as pure as I can get them they kind of make sense to me and once I’ve settled on those for probably about eight or nine years I haven’t touched a line of code in those days. They’re at where I need them to be and then it’s a question of once you’ve got some indicators understanding how to use them (Houston: right) and o not optimize indicators, don’t stop playing with look back periods – I hate anything that’s got any kind of optimization and there’s maybe one or two numbers that are fixed in the indicators and they’re fixed for good reason and they never change; there are no inputs on the indicators so there’s nothing that – you just load them onto a chart and they worked for tick bar charts and low time frames to monthly charts and there’s no kind of optimization going on there. So, they’re pure in terms of code but then it’s about understanding the nuances because what you have in markets is behavior and behavior is not rational – it is irrational – and you’re using mathematics to, draw a kind of rational conclusions out of an irrational situation. So, there’s art – you have to recognize that there’s some art, there’s some play, there’s some give and take. You’re going to see explosions of emotions on a chart and an indicator will help you understand it but it’s not going to be bullet proof – it’s not going to be one hundred percent and you have to be happy with a seventy percent and then say OK now it’s up to me to finesse this, to use the art to use the art to know when they’re working, when they’re not working, when to give them time and then when to use them (Houston: right). To just make a comment, on you say that these are a very popular set of indicators and I’m fortunate I have a great following on the blog and there is the e-mini watch site is popular in certain circles and so on but indicators this is the path the people and this is the ways people should think about indicators is go out there and buy indicators but do not expect them to be the way you trade I went out and bought a whole bunch of different stuff and it was part of my journey to figure out what made sense for me and so although you know the customer base is I would wonder how big the actual ongoing customer base is because I think a lot of people kind of buy the indicator set, use them for a couple of months and then they move on to something else and so it’s part of their journey. It’s useful but don’t think of it is a be all and end all and then if one of the three kind of makes good sense and use that with the combination of other things that you’ve found that a kind of good so it’s not a question of this is it, this is the….

[33:24] Barry: Absolutely not. This is, on people’s journey this might help you see something that helps you develop your own methodology and system because everybody frankly we’re all different; we’re all trading huge number of different types of instruments with different time frames with different ideas and so on and you know this is what makes sense for me but it should be on people’s ….consider it – think of it as being part of your journey but don’t expect it to be the ultimate because it will never be that.

[33:54] Houston: That’s simply put; but at the end of the day, you kinda need to own those indicators; you need to be the master of those indicators versus the indicators being the master of you because you because you don’t understand how the indicators are working and you’re just randomly taking the signals but actually understanding like you said the art of how to finesse things, then yeah, you’re at the mercy of the indicator.

[34:17] Barry: Yeah absolutely. I always think about the market: so there’s two kinds of traders out – there are two types of people – there are good listeners and they’re bad listeners. You know, you go to a party and there are people that make a lot of noise and they’re telling their story and then there are people who are just quietly listening, contributing, asking questions and so on. Good traders are good listeners because they can look at a chart and they can listen to what the market is telling them; if you come in and you’re kind of loud and boisterous and you want to dominate, you want to tell the market what to do. I’m convinced the market is going to turn at this point I’m right, I’m going to take this trade. I’m going to be a genius here and show my friends up and this is …I made a huge amount of money because it did what I knew it would do versus the people listening- they’re looking at the chart and saying I can see how the conversation is developing – the buyers, the sellers, the amateurs, the professionals how the market is moving. I’m listening to what’s going on. OK I saw start to see a break out the market is telling me that it wants to break higher or lower whatever it is – will have a little pullback, will see that it’s tested and it gets tested and it kind of develop fully and then the professional join in and it kind of gets going and so it’s people to the listening they’re looking at chance that I’m not trying to be right; I’m not trying to tell the market what to do, that’s disaster you have to be open minded and listen and the indicators are relaying that information to you about what is going on, what is the conversation so it’s almost like translating it into a language that you can kind of understand.

[36:03] Houston: That was a very, very good distinction you made there and it was layered because you know that talks to both our trading psychology at the same time just understanding market behavior – letting it play out versus trying to beat a kind of a type A personality and telling it what to do.

[36:22] Barry: The type A personalities I mean go do a type A job you know if you’re a great salesman, if you’re a great lawyer, a great doctor you know people that are used to being right. They’ve studied in universities and they’re in charge and it’s like those guys – go do type A jobs, go do a great type be a great type A person but those characteristics will not help you at all trading because the market is in charge, Mother nature and behavior are in charge.

[36:55] Houston: And what do they say about engineers? Don’t engineers also face some difficulties in trading?

[37:00] Barry: They do. It’s interesting because – you attract like-minded people; so the blog I mean, I’m an engineer of a certain age – I’ve just gone fifty and I attract engineering. I mean, there’s a whole, there is a wider group than hat but I do have a good number of kind of engineers who a few years older subscribe to the blog and they do care a lot about the mechanics they care about the platform they care about having the best machine, computers, the best internet connection, the best indicators and so on and they do can get wrapped up in the technology of it. So I’ll tell you an example so we’ve got The CME – the Chicago Mercantile Exchange and Global X is changing to a new data protocol called N.D.P. three at the moment you’ve probably heard about it; whether the tick data is going to be bundled or unbundled. Now, this is a really esoteric kind of conversation but you know my subscribers- a good portion of them- just love it; they’re trying to anticipate is going to be good or bad for the market, how do you write….

[38:17] Houston: Some people are probably freaking out and some are like …..

[38:18] Barry: And some people are absolutely freaking out like you just kind of destroy my methodology or whatever. So, you can get wrapped as an engineer in the technology side of trading and then there are people who are just want to money and they get wrapped up in the money side and they don’t care what they trade. They just want to make gobs of money and that’s the kind of focus but we engineers have our predisposed kind of problem.

[38:47] Houston: We all come in the game with some kind of biases that plays out. (Barry: Absolutely)So let’s talk about sounds like you found a methodology that really, really suits your personality and your mind set, so you know we always talk about often on the show about trading edges, what do you think is your training edge – everyone is supposed to have theirs, do you think you have an edge that’s unique to you?

[39:12] Barry: Look the one thing when my training really started to take off what was happening I was I was reducing my targets – I was reducing my targets to something that was makeable and I could live on and so my edge is I think my edge just stopping – being happy you know. I’ll make my four maybe stretch it out to five, some days you get a push out my profit target to six points then I’ll review my charts at the end of the day and maybe the move was good for fifteen you know and I’m OK with that because I made my four. I don’t care that the market did fifteen and that there was another you know X thousand dollars on the table to be had; I can make four – I can stop and not over trade. I think that’s probably what my edge is – just being happy with that work a day kind of day to day I’ll never be on the cover of any magazine but I can live, make a living from this and that’s, that’s probably my edge if anything.

[40:23] Houston: Well, so would you say it’s the lack of an inner critic who is not beating you up for not taking more points out of the market?

[40:30] Barry: Yeah, just so much I’ve adjusted what my goal is – my goal my job is to make four points and once I’ve done my job that’s it. There are a few jobs these days where you just have to complete a task and that is it; there are so many open ended jobs these days you know if you’re running a small business or if you’re a professional golfer or whatever it might be me and maybe maybe sports like you know surfing you’re want to be crowned champion that’s your that’s your goal but that’s kind of a big goal a yearly type goal but a day to day kind of goal or so many open ended jobs and I’ve done I’ve created my job as being this is it. I mean, I love what I do. I look at the charts, I keep on looking at the charts – it’s not like as soon as I’ve made my money I closed my charts and say Thank God that’s over (Houston: yeah). I’m fascinated by the markets but as soon as I’m done, I’m done and that’s when I stop because when I don’t stop that’s when I get in trouble and it’s because of the day the way that day goes as a market. We have a lot of volatility early in the day, in the first twenty minutes because the markets trying to figure out which way to go but as the day progresses there’s more certainty as to what that direction and end point is. So, the volatility and it’s becomes asymptotic and a bit it just goes to where it’s supposed to be for that day and so that the trending moves don’t exist later in the day. It means they’re obviously I mean that’s you can’t say definitively but they become less obvious later in the day. Yeah, and at lunchtime – if you’re a day trader during the lunch hour, you’re crazy.

[42:26] Barry: It’s a crapshoot and the pros of gone to lunch. They’ve left their second in charge on the desk just in case something happens and they make might throw in a little trade or whatever but nothing big is going to happen while they’re away from their desk. (Houston: right) so you go where the opportunities are.

[42:47] Houston: Yeah; so what I get from you in this interview is that it sounds like you have a really high level of self awareness in terms of what you want to get out of trading you know and how you’re going to feel in terms of reaching your goals; like you’re very, very clear in terms of what you want and you’ve structured a very, very unique kind of daily architecture to get yourself there. That’s very commendable.

[42:09] Barry: I’m glad; it sounds like as a big a mess as everybody else. I can’t manage an inbox and I can’t get my To Do List done but and it’s taken me years to get to where I am and we’re right – what I say works for me is not for everybody. In my head, I always have this image of a little grandmother who’s just you know making a point a day on the e-mini, you know she might be putting on a trade kind of first thing in the morning with maybe a one point target and a ten point stop and you know what with the volatility in the market she will ninety nine out of a hundred get the one point target be hit you know and she’ll make a little bit of money every day. Nothing clever nothing super smart she doesn’t understand you know the big picture or you know what the Feds decided to do or anything like that but she’s just doing a little thing every day and just compounds day after day after day so. That’s where I’ve reached at least and maybe things will change but for now it does work for me.

[44:22] Houston: Yeah it’s great. And just talk to how unique everyone’s journey is in terms of trading that there is no single one way to to be successful in trading and a lot of that just boils down to self discovery- everyone likes to hear about those overnight successes but the reality is that those are very few and far between – they’re kind of the outliers. And we are going to have this unique journey whether it’s through the use of indicators or price actions or fundamentals or whatever method you create; you just have to find out what fits you – there are no shortcuts there.

[44:54] Houston: I love that. Yeah, and so I’m curious though do you do you find that you know the influence of algorithms nowadays have changed the way markets move and maybe the chances for the retail trader or the discretionary trade?

[44:18] Barry: So two things: definitely the high frequency traders you can actually see the character of the… and I wish I had a way of measuring this because there have been periods six or nine months where the market will behave because I’m looking at tick bar charts so I’m looking to be kind of down in the weeds. You’re not looking at a five minute chart and I’m seeing all the little ticks up and ticks down and I’m looking at my Pro Am indicator which is showing me where the professional and amateur kind of stuff is going on and they’ll be periods where there are six or nine months when you can definitely see the market has a character and then almost on a day it’ll just change and it’s as if one of the high frequency traders with one of their models they just switched off one of their models and they’d switched on to something else. It’ll have a different character and that definitely you can see that. But could I put my finger on it, could I measure it, could I show it it’s just you kind of just from looking at your charts over the years you kinda get a feel that something has changed but you don’t know exactly what. In terms of you know we talked about the stock traders who are just going to rid of fundamental disadvantage because the C.M.E. and Globe Ex exchange I think is the purest kind of exchange out there where everybody ….we’re playing on a level playing field you know there’s some spoofing that goes on but there’s no front running that goes on you know. My orders are going to get executed you know in or the order I’d put in compared to a body else but when you’re trading stocks you’ve got you’ve got the market makers, you’ve got the different exchanges that doesn’t also exchanges and all the front running that’s going on all the Michael Lewis stuff to do with what’s going on there. We have all the news events and all the insider stuff, there are definitely people that know more than the retail traders. So high frequency trading and the professional traders kind of gaining places, they will go where they have opportunities to game the market so try and be in a place where the market is as pure as possible and as as best I know kind of the Globe Ex exchange is that place and that’s one of the reasons why it’s so popular. It’s exploded, I mean we’ve basically shut down pit trading everywhere we’ve all kind of gone electronic and it’s becoming a platform where more and more things are gravitating towards because it’s pure and it’s fair.

[47:55] Houston: And do you think then that because of that kind of back drop, that’s there’s good opportunities for retail traders even though we’re seeing it.; you know, the H.F.T. is all the time because it is the kind of I guess the cleanest space. Do you think that’s probably the place to play?

[48:75] Barry: Yeah, so far you know the H.F.T. stuff has been has not really messed up as a market I mean, that may change in the future; I mean, I would love as I was to about kind of the end goal in this and I don’t know we’ve not done this but I think the end goal ultimately with exchanges we have three Seek supercomputers – one in each major time zones – one in the Asian times, one in the US times and one in the European time zones and duplicate their copy just in case one gets taken out of whatever. And all – we have no over the counter trading anything – everything is traded on an exchange, it’s all traded in order there’s no front running and plus there’s no canceling of orders you know within microseconds. We should have no place in order and there should be a two seconds wait before you can cancel or amend the order or something like that. I mean in my mind that’s the ideal world but we’re never going to get there because it behoves too many vested interest for there to be inefficiencies in markets and places where people can you know dark pools, the front running; all the little games that are played by professionals in certain places and you know they kind of – they’re smart people – kudos well done, you’ve found an arbitrage opportunity or something that’s like a certain deal but the retail trader is still. Funny enough I get emails from guys saying, occasionally this is not a frequent thing but they’re saying, my broker is trading against me, he knows exactly where my stop is and he just hit my stop kind of to take me out of the market and so I don’t think that is going on I really don’t, so I think the retail traders still is able to compete and the more and more we move towards we should all care about the changes. I am curious for example this N.D.P stuff with the CME and the data coming out how actually that will be translated into platforms and performance and so on, if they just broke it and made it advantageous to the large players then I will be the first to jump up and down and say that’s wrong but so far we are still able to compete which is important.

[50:42] Houston: And so, do you have a very strict methodology around maybe we call a system of how you trade. Why haven’t you just taken it to the point to just automating it and letting it run?

[50:58] Barry: Oh I wish. I am actually in the process of going towards a far more systematic kind of from a highly discretionary trader to a far more systematic trader, because it gets too stressful making decisions all the time where as if you are kind of just basing you decision on a system and just saying, the only decision becomes do I take this trade or not. So I am moving towards this most systematic kind of methodology, but my methodology is tick charts and multiple time frames, so I am looking at three time frames and with tick charts and just there is a pure can it be done, can I code it? To work on three time frame and also test it with tick charts and both of those things have in the past been almost impossible to do; they’re getting easier to do and I wish I could in the future, but I still believe there is a good bit of art in this, I think it is 40% art, 60% indicators I don’t believe yes people can be 100% mechanical and I have guys that use my indicators, because they come with function, they can code them up into purely mechanical systems and they do that and they do extremely well, but I have never been able to kind of manage that there so many hours in the day

[51:18] Houston: That is interesting; thanks for that perspective because I was always curious you know, you have had the chance to use those indicators, I know you are a long time user of trade station and ninjas, so I was like why not just make a jump to full automation, but I get where you are coming from.

[52:37] Barry: It would be nice. It would take the stress out more, but you’re actually just swapping one set of stresses for the other, because systematic trading is like you have to be able to sit through draw downs and I am not very good at that, if I have a losing day I am an angry person, cause it just means I would have done a dumb mistake, I’ll have tried to over think the market and think I am smarter than the market and that’s when you get into trouble, that’s when all my losing trades are because I am trying to be smart and that’s the wrong thing to do, you have to listen.

[52:14] Houston: Great advice, so trading is a performance activity, and you trade in different time zones; what are you doing to get the best out of yourself? We kind of talked about this already, but do you have any routine that you go through, any rituals that you try to try to kind of get yourself into that trading mindset to get into the flow?

[53:44] Barry: I don’t, I suppose I listen to myself when I say, do I feel like trading or not? That’s an important thing, if do not feel like it or if it starts to go wrong early or if the market feels like it is a go nowhere day and you can tell that in the first 10, 15 minutes, if you are making mistakes, if the market is just not kind of doing anything special and if you really don’t want to be there at your desk, you’d rather be sleeping or out doing something else, just stop do not do anything. So it’s a question of, that would be the – I don’t have a ritual – I heard you the other day talking about bulletproof coffee and I actually tried bulletproof coffee now, I had overdosed on I have heart palpitation and I said to my wife: I can feel my heart this is very odd and I have been doing it for several weeks and I have thought I might have damaged something. So I’d love to say I have a ritual that I go through, but not really no, I make sure I know when the news releases are out, because I don’t want to be caught at like [8:45] or 9 in the morning with a big release that kind of comes out and I had no clue is was going to happen. That’s a disaster, so that’s about the only thing I must do every morning, is check Bloomberg and look at the calendar and make sure I kind of know what is going on.

[55:15] Houston: So can I ask how much time you give yourself to prepare in the morning? So if it’s the [9:30] open, do you trade at [9:30] or do you trade before the open?

[54:23] Barry: So I am always looking Chicago time, so [8:30] is kind of the day in me in Sydney, so I am waking up literally at [8:25].

[55:35] Barry: I put on a robe and turn on the lights and the computer and I just need a few minutes to look it up, I don’t put on anything in the first 5 minutes are so and then I can see what’s kind of going on and I can make a decision quickly about what to do, but I know that sound incredible lazy and slack.

[56:36] Houston: So first off, I am curious, so you mentioned a couple of books early on, do you have some top recommended books that you tend to give or tend to recommend people to read, whether it is trading or nonrelated, any great books that you read recently or that are on your to do list?

[56:58] Barry: Read recently is no. I haven’t touched a trading book in over five years I have to tell you. So blogs I am subscribed to a whole heap of blogs, I love reading what is going on and understanding what is going on, but in terms of books, there are two books that I always kind of point people towards. The first one I have to give credit to John Ellis – his stuff is amazing if you have the mathematical kind of inclination, his books are just a gold mind, so anything about John Ellis, so Rocket Science of Traders, start with that, the Cybernetic Analytic that is another one is fantastic and then a big picture book which I loved and always recommend is the Devil Takes the Hind Most which is unusual. Have you heard of it? Edward Chancellor.

[57:54] Barry: And it gives you his long, long history – kind of back to 1700s, 1600s maybe with the tulip stuff and he gives you mania and panics and all of those markets and I think we have to remember that we are always in the context of a big trend that is happening and we are fortunate I said when we picked up the phone together, we are fortunate to be living through what’s going on because it is fascinating, we are seeing, people will argue against this, but I think we are seeing the death of socialism like of happening, we have had socialism in the developed economy since the Second World War and we ran out of money and we are coming to an end and it is how that end develops and we have moved to basically command economies with central banks been just dictating what happens and we are an extraordinary times and it is fascinating what is going on and how this develops over the next it is not going to be weeks and months, we are literally talking years and decades, but how it plays out is going to be fascinating, so I think that book The Devil Take the Hind Most kind of gives you a sense of real long term perspective and then what we are doing kind of day to day sits within this really big trend and what’s the really big picture that we are kind of involved in which is kind of interesting, so that is books and then blogs zero hedge the usual guys are just fantastic, but they don’t affect my trading. I am just trying to figure out what the big picture is, but day to day it doesn’t matter making four points what zero hedge said that day has no bearing (Houston: it’s not relevant) none at all so I am doing that just for the pure pleasure of it.

[59:43] Houston: Cause if you don’t mind me saying Barry – sometimes it seems like your blog has a bit of a bear slant to it.

[59:53] Barry: I know, I’m dreadful. I tell you a story – we were in the engineering labs this is in the university and the first Apple Mac computer, you remember the beautiful little box that was Steve Job’s baby when he launched the Apple Mac the old classic, it kind of came out. We had one in the engineering labs and one of my lab partners got a hold of it and start doing stuff on it and he said, you got to come and look at this and he put it on the desk and he fired it up and he wrote a letter and he had his contacts in there and all these kind of stuff and seriously I looked at this and said that is kind of cute, but I don’t think I will ever use one of those

[1:00:29] Barry: Honestly, it is like new technology or big ideas, I am just such like a negative bear, anything positive big grand, I just can’t see it and I get emails all the time people saying, oops Barry is gone bearish time to go long and usually they are right.

[1:00:55] Houston: That is too funny. So another quick question for you, what do you think, if you weren’t trading. What would you be doing?

[1:00:63] Barry: I like online businesses, my wife got an online legal business that she runs that I find kind of fascinating, I am kind of the tech help when things kind of start to go wrong. I like online businesses, I like the internet, that’s why I started the blog in the first place, because I for whatever reason thought I had something to contribute and God knows why I thought that, but particularly six or seven years ago when I feel as if I knew virtually nothing, but actually I get a lot of pleasure actually, the blog is my hobby and it costs me a quite a lot of money to run it, the video hosting is a thousand bucks a month and there is no advertising on the site and it makes a little bit of money I sell some indicators so I am not like going to trash it, it is but it is not the real money making kind of, it is just fun. So I probably would be blogging in some fashion and getting probably been trolled or hate mail, whatever.

[1:01:73] Houston: I just want to say your blog looks like a real labor of love, because it looks great and you have been doing HD videos for years and it has always looked spot on so

[1:01:84] Barry: Thank you. So that is the inner Engineer and the perfectionist kind of coming out…

[1:02:31] Houston: That’s cool; so just one last question for you then. Take a step back and you go back to the Barry that just first picked up his first trading book. What advice would you give that person?

[1:02:47] Houston: Yeah, the one that just started, who was kind of new to trading, had all these grand ideas and maybe dreams. What would you offer that person?

[1:02:55] Barry: I would say put aside what three, four, five years and don’t have high expectations of what, you got to put in your time, this is you know, you have to do your apprenticeship, you might be lucky, you might stumble upon like the Holy Grail and someone or something that is just perfect from day one, but most of us have never found that, don’t really know if it exists and I am sure there are some people have got something that is magical, but I have never been able to find it and just admit that you have to kiss a lot of frogs and then don’t trade – paper trade, watch, listen and learn, do not trade, imagine taking trades, paper trades. We have all these fantastic platforms these days where you can kind of setup dummy accounts and dummy trades, do that for a long, long time, don’t risk your money, because you will lose it to start it most likely and you are much better off just listening and learning paper trading I would say.

[1:04:07] Houston: Cool great advice. Thanks for sharing that, so let’s just wrap up the interview by asking one final thing, so if people want to engage with you further, they want to follow you. What is the best place to contact you are follow you?

[1:04:22] Barry: They are most welcome to follow me, engage me I am not so sure, my inbox is slammed every day and I am OK with delete buttons, if you go to e-mini watch dotcom and at the bottom of post of the pages there you will find a little signup box, where you can put in your email address and signup and then all the links to all of the kind of social media stuff when most of my stuff is kind of copied across, so Twitter, Facebook, Google+, YouTube, iTunes, all that kind of stuff, so most of the pages have that at the very bottom of it. You can find most of the stuff there.

[1:05:01] Houston: Perfect. I just want to say thank you again Barry it has been a great conversation today, I had a lot of fun.

[1:05:07] Barry: My pleasure, I did too Houston thank you for making this happen, I really do appreciate it.

[1:05:12] Houston: And for the audience, I want to hear back from you so, what is the one biggest insight you got from this podcast, I always love to hear your answer to that question and Barry shared a lot of interesting ideas today, so if there is something that is really resonate with you. What would you be willing to try? Is it maybe paper trading for awhile or maybe removing some of the indicators from your screens and trying just to narrow in on a really core set? Let me know share with us in the show notes and as usual you can find all the show notes, the transcript for this episode and all the resources you mentioned on this podcast by going to the tradingedge.org/episode12. Thank you once again Barry it was a lot of fun.

Resources Mentioned

Bulletproof Coffee – Barry shared a funny story about his most recent Bulletproof coffee (BPC) experience. I’m also a big fan of BPC but suggest easing up on the MCT when you first start out to avoid the dreaded “disaster pants”.

ABOUT ME

My name is Houston Truong. I'm full-time independent North American equities, options, and cryptocurrency trader and have been trading for the past for 12 years. I coach traders around the world about the intersection between trading, peak performance, and psychology. I am also the founder of the Montreal Traders Meetup group.